Car payments are out of control. That’s the most prominent message from Lending Tree’s 2023 auto loan statistics. The financial services giant found that average car payment amounts climbed by double-digit amounts over the last year and have now reached alarming heights.
The average new vehicle payment rose by 13.3 percent to $700 per month. Used vehicle payments increased 11.2 percent to $525, and even lease payments increased by more than 12 percent to $567. At the same time, the average loan term is now 69.7 months – nearly six years, meaning many people will pay a lot of money for a long time.
Auto loans have grown to be the third largest debt category, totaling 9.2 percent of American debt. Mortgages and student loans are the only types of debt that outpace auto loans, which Americans take out at an average pace of $61.8 billion each month. Americans under 50 years old are the main drivers of that debt, racking up $38.5 billion of the total.
All of that sounds catastrophic, and it might be, but Americans have decreased their loan delinquency rates. The percentage of loans at least 90 days late decreased from 5.3 percent in 2010 to 3.9 percent last year. The 30-day overdue numbers also fell from 10.9 percent in 2009 to 6.2 percent. That said, the majority of vehicle loans are handed out to people with credit scores of 661 and higher, and subprime borrowers hold only 15.8 percent of loans.
New auto loans are larger on average
Buyers paid an average of $41,665 for new cars in late 2022, according to Experian. Used car buyers paid an average of $28,506. Interestingly, borrowers with fair credit (601 to 660 credit score) have the largest loans, with a $44,530 average amount. Borrowers with higher credit scores tend to take out the largest loans for used cars, at $30,222 on average.
Who is issuing these loans? Most of the time, it’s a credit union, according to Lending Tree. They accounted for 28.4 percent of the auto loan market. Banks grabbed 27.3 percent, and captive lenders, like dealer financing, landed at 21.9 percent of the market.
How you can get the best rate for an auto loan
Credit unions are popular options for car buyers because they offer a variety of lending products and generally have better rates than many banks. At the same time, you may find a better rate and more agreeable customer service using an online lender. Some approve and can have funds in your account in as little as a day.
If an online lender isn’t for you, you can still get a reasonable rate using dealers’ in-house financing, especially if you’re buying a new model. Many automakers offer incentives and promotional rates on loans and leases, but you’ll need to read the fine print carefully. You may also have to settle for a different trim level or configuration to get the deal, as many are offered only on specific models.
Beyond shopping around, it pays to know your credit score and to be aware of any inaccuracies on your credit report. Before you start applying for loans, review your credit score to see where you stand. It’s better to educate yourself to get the best leverage and be able to negotiate.
Frequently asked questions
What is the cheapest place to finance a car?
Credit unions are usually the cheapest option. Behind them, online lenders sometimes offer better rates and services, and you might have luck with a dealer or automaker incentive.
Are leases better than auto loans?
Leasing a car can be a good decision for some people, but in many cases, the mileage limits and other factors may make them impractical. If you drive extensively, you may not be able to get a lease because restrictive annual mileage limits can lead to massive expenses when you turn in the car.
Can I use my own financing at a dealer?
In most cases, yes. You should be able to take your own preapproved financing to a dealer and buy a car. The dealer may try to convince you that their rates are better or that a certain promotion is only available with their in-house financing, but they can’t force you to use it.
How much is the payment on a $30,000 auto loan?
Payments depend on your interest rate and other factors. You can enter the information you know here to get a rough idea of what you’ll pay.
Can I get an auto loan with bad credit?
Several lenders offer loans to borrowers with bad credit, known as subprime borrowers. That said, subprime loans almost always have higher interest rates because lenders view the borrowers as riskier.
